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tv   Senate Budget Committee Hearing Examines Trump Economic Policy  CSPAN  May 11, 2017 1:31am-2:56am EDT

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former senator phil graham spoke at a hearing of the senate budget committee about policies to grow the economy. he made recommendations on tax policies, spending, and immigration. senator mikens decide chairs this 1 hour and 20-minute hearing. >> i'm going to go ahead and call this hearing to order and i know that people aren't interested in our opening statements, i'll go ahead and do my opening stamtd and if senator sanders, whenever he makes it here we'll allow him do his opening statement. there was a vote this morning and i'm not sure exactly how it came out yet, but i know that's got quite a bit of interest over there, but they should be back here pretty quick. so good morning and welcome to our hearing on growth poole policies for the new administration. first i want to thank senator phil graham graham for agreeing
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to testify this morning. he's always been one of my heroes of the senate, he was one of the first people that i met when i got to washington, and after listening to a few of his debates when i can see terror in the face of his opponents, i actually got to sit down and visit with him about some critical issues. i was on the banking committee that he was the chairman of at the time and i learned a lot. and i wanted to specifically to have him here for a hearing because of his past experience, not while i was in the senate but before that when he worked with redmond and hallings and that's had a carryover effect on us today and that was kwielt a while ago so there need to be some revisions in it so we'll be relying on him and others who have chaired the budget committee to come up with
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solutions that will make it possible for us to kwul u actually get control of the budget while we improve the economy. so, senator graham's decades of experience serving as an elected official both in the house and then in the senate, both as democrat and as a republican, not at the same time of course, provide insight into which policies have historically led to growth upon implementation as well as which are most politically attainable for the new administration and for congress. the rules that govern budget information are incredibly outdated. the last time congress updated its accounting rules was long before any of us here in the committee were in federal office. the last comprehensive change was 50 years ago. i'm proud to say that last month the members of the committee unanimously approved reforms to the broken budget process that will lead to more orderly, meaningful, and transparent consideration of budget
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resolutions in the senate budget committee. not on the floor yet, we'll hand that will one later. in addition to the budget process reforms adopted by the committee, i've also proposed a budget concepts commission to review government budget rules and ensure that they keep fais pace with advances in economics, with accounting and with finance. this should abe bipartisan exercise with each party receiving an equal number of appointments. they should kofrp comprehensively review the budget information used by the executive and legislative branchs. congress writes policies based on their budgetary impact. all of us want taupe sure that legislative ef mates are clear, concise, and accurate. for example, past scoring practices did not i clued the reaction of the general economy to major policy changes. we know however, that are big policy changes can and do alter the size of the economy.
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dynamics can add missing economic information that static scoring does not provide making the score more complete. this is critical information for policymakers to better understand how legislation effects the economy as a whole, how macroeconomic feedback or dynamic scoring interacts with congress's official costs of legislation which is important for the committee to discuss. these budget rules are particularly relevant when congress considers policies with the goal of increasing economic growth. tax reform is a prime example. in last week's hearing we discussed with national economists how taxes influence economic growth. both the congressional budget office and the joint committee on taxation recognize the link between taxes and output of the economy. according to the jct tax policy can directly influence the level of labor supply, the physical capital, the human capital, and
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technology in an economy by changing the after tax returns to certain economic activities or changing the cost of pursuing them. our tax code's a mess and it's riddled with inefficiencies and loopholes. people are demanding some simplicity. reform that makes it simpler and fairer for everyone would require bold policy changes, not tweaking around the edges of a broken structure. broad evening the base and lowering tax rates will limit government distortion of market based decisions, it will increase efficiency and growth of business. our projected economic growth is below average and we need to continue discussing the root causes of our lethargic economy in order to promote policies that grow it. as you can see from this graph, where's my graph? there we go, as you can see from -- from this graph, a 1%
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increase in gdp significantly changes the trajectory of expected federal ref roou knew. the blue line is the current level and the orange line is the revenue with higher growth. the gray line is federal outlays regardless of growth our spending still exceeds our income. cutting the growth of spending is something this committee will continue to address. i look forward to our conversation today on how congress can work with the new administrationing to foster a stronger u.s. economy and the impact of that growth on the federal budget. so, since senator sanders isn't here, i'll go ahead and introduce our witness. our witness this morning is the former senator phil graham, a visiting scholar at the american enterprise institute. he served six years in the u.s. house and 18 years in the u.s.
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senate. his legislative record includes landmark bills like the graham latta budget, which mandated the reagan tax cut and the graham redmond act which placed the first binding constraints on federal spending. as chairman of the banking committee, senator graham steered through ledge sclags modern eyesing bank are, modernizing insurance and modernizing securities law which had been lang kwishing in congress for 60 years. that's our normal pace i think. he holds a ph.d from the university in georgia in economics. the subject he taught at texas a&m university for 12 years. he's published numerous articles and books on subjects ranging from monetary theory and poll stoi private property and the economics of mineral extraction. this morning senator graham will testify on growth policies and how a new congress and administration can get our economy going again.
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we've talked not only with the chart that i had up, but other times with how much a slight increase in the economy makes it bringing in more revenue. so i look forward to hearing your testimony. senator graham. >> mr. chairman. [ inaudible ] honor to be here. i remember first meeting you as this young accountant who had this annoying habit of wanting things to add up. for the last two decades, i've watched your career as i'm sure the people of your state have watched it. and as a person who worked with you when you were a very young senator i'm very proud of your career and what you've done. today i want to talk about the
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budget. i've always taken an interest in the budget because behind these numbers with the sort of endless row of zeros behind them, is a vision for america's future. i've always thought the budget in trying to set out what we wanted government to be and therefore what we wanted america to be was very important. so from my very first day in the house until the day that i left here in '02, i have paid very close attention to the budget. what i'd like to do today is to talk about where we are in the economy. why the economy is performing poorly today, at least from my
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perspective, and how we change it. i realized in trying to write this testimony that when you're talking about the performance of the economy during the obama presidency and you're talking about the reagan program and the performance following the empla mentation of the reagan program, that no matter how you want to be nonpartisan, that we're all invested in those things. and so it's very difficult to talk about them without it becoming a partisan issue. and i think it's too bad that's the case. i want to try today to the best of my ability to not inject partisanship into what i have to say. i'd like to talk about what happened in these years and then the programs that gave rise to that performance, and then look to the future.
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first of all, we have a lot of experience about america's economic performance. this is an extraordinary country where labor from somewhere else and capital from somewhere else met here, fell in love, and with very few exceptions lived happily ever after. even in postwar america, american exceptionalism has meant that we have outproduced and grown faster than any developed country in the history of the world. from 1948, the end of the post -- the beginning of the postwar era until 2008, counting recessions, ten recessions, ten recoveries, we averaged an astonishing 3.4% real growth.
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in good years, in bad, under democrats, under republicans, we consistently grew. until 2009, we had not had a president in 135 years that did not have at least one year during their term where we had 3% real economic growth. and i picked 135 years ago because that's where the data begins on an annual basis. i suspect it's true that never in american history had that been the case. in ten of those recessions and recoveries, the american economy behaved basically the same. we used to have a cliché in teaching freshman economics when i was a college professor that the bigger the bust, the bigger
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the subsequent boom. and that pattern held throughout the postwar period until 2008. and then in 2008 we had a recession, the subprime crisis. and following that recession, we had far and away the slowest economic expansion, the slowest recovery in american history. the economy grew by an astoundingly low 1.47%. now, obviously the question why? and people can give whatever interpretation of the facts they want to give, but let me give you my interpretation. our policies beginning in january of 2009 were distinctly
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different than the policies we had followed in every recovery in postwar america. there was a dramatic increase in marginal tax rates on individuals because congress and the president couldn't agree on reforming corporate taxes. we ended up with the highest corporate tax rate in the world. eligibility standards for social security, disability, and food stamps, dramatically reduced and enrollment exploded. the -- we expanded medicare and medicaid. obamacare was adopted. the work requirements were suspended under the well-welffa program. and through legislation, through agency action, and through
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executive action, a layer of regulation was applied like a wet blanket over the economy that literally choked the economy. and as a result of the policies being so different than the policies we'd followed before during other postwar recoveries, the net result was very low economic growth. in fact, i don't think it's an overstatement to say that as our government came to look more like a european government, our economy performed more like a european economy. now, let me just give you a contrast to that. the two policies in postwar america that are the most distinct are the obama policy on one hand, and the reagan policy
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on the other. and it is i don't think a coincidence that the performance of the economy following those policy implementations represent the high and the low of america's postwar economic performance in terms of economic growth and achievement. when reagan took office, we were coming off a slower period of economic growth, 2.5% in the late 1970s. the inflation rate was 13.5%. prime interest rates had peaked at 18.9%. and there was a general discussion in america, serious discussion about how economic and political melees, and how the scarce sity of resources meant that america's future was going to be dramatically
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different. mr. chairman, you may be old enough to remember the "time" magazine headline the joyride for america is over. well, ronald reagan was elected and dramatically changed policy. and what happened? the performance of the american economy changed dramatically. reagan cut marginal tax rates dramatically. i'm being dramatic but these were dramatic times. he cut nondefense spending and entitlement spending, and he lifted regulatory burden. when that program was in effect, the economy in the last six years that reagan administration grew by 4.6%. and in four of those six years,
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federal revenues grew by over 10% per year. now, this comparison is important because the question we're faced with now is are we in a secular stagnation or is this a policy-induced stagnation? my believe is, and i think an objective reading of the policies of the postwar period and the performance of the economy in the postwar period is that policy makes a difference. american exceptionalism is based on freedom and market efficiency. and when government policy reinforces those things, the economy grows and has no equal on earth.
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when government policy stifles those things, the growth of the economy is stunted. and i believe that that's what happened beginning in 2009. now, the question is, what can we expect when we move from a policy that was everyone pimple the last eight years to a poll say that is closer to the reagan policy? what happened when we dramatically reform the tax code? when we reduce rates? when we strip out provisions of the tax code that misallocate resources? what happens when we lift regulatory burden? what happens when banks begin to hire people to make loans rather than hiring compliance officers?
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well, what happens is i think we will begin to see the economy move back to what we knew for 60 years was the economic norm in america. through ten recessions and ten recoveries until this last recession and recovery, we averaged 3.4% real growth. if by changing policy we could get that growth back, as you showed in your chart, if we could get back the normal growth america experienced for 60 years in postwar america, revenues would rise by $4.6 trillion over ten years. if we could just get half that difference back, if we could just get halfway back to the
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norm by implementing policies that have been the normal policies in postwar america, we would get $2.3 trillion of new revenues in the american economy. now, i want to digress real briefly to make the point that growth is the key factor for federal revenues. and i'll just give you two examples, and i give them because they show how powerful growth is. and i picked two examples of tax increases. in 1990 there was a budget summit agreement, and part of that agreement was to raise taxes. and a tax bill was adopted, and that tax bill was projected over five years to raise revenues by
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$159 billion. but because of subsequent poor economic performance, because the growth rate fell as the economy slipped into a recession, revenues actually declined by $206 billion because of a decline in economic performance. probably the most dramatic one in american history occurred in 2013. the bush tax cut expired, a new tax bill was adopted that was supposed to raise $650 billion over a decade. after that tax bill was adopted, the cbo continually reduced its projection of economic growth to the point that those reductions
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in economic growth reduced revenues five times more than the tax increase was supposed to increase revenues. if you don't have economic growth, you can't balance the budget. if you don't have economic growth, you can't fund the policies that we are committed to fund. right now the congressional budget office estimates that the economy is going to grow about 1.9% for a decade. at 1.9% with a growing population and with a population that expects to have opportunity, that expects to have prosperity, and with a disappointment that will come at that growth rate, there is no possibility that we're going to be able to meet our obligations
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in programs like medicaid, medicare, social security. so we have got to get out of this rut. now, let me give you two examples of policies that have had a pretty big impact economically. and let me start with the 1986 tax reform. this is not only the standard in america, this is a standard in the world when you talk to economists anywhere in the world they talk about tax reform, they talk about 1986. when we adopted the 1986 tax reform, the congressional budget office said it would have no effect on federal revenues. that was their official projection. but they actually almost immediately lowered their projection of economic growth to 2.9%. they did that in january of
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1987. by the time the tax reform was fully enforced over that ensuing five years are the economy grew by 3.8% and revenues grew by a commensurate amount. the most dramatic underestimate by cbo occurred when it scored the 1997 balance budget act. you will remember the congress and the president under president clinton reached an agreement to commit to a balanced budget and adopt budget numbers to achieve the result. they also agreed to cut the capital gains tax. the congressional budget office projected that that action would produce $33 billion of new revenues. in one year alone in the year
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2000, the economy generated $303 billion more than the congressional budget office projected, and by the time the whole budget cycle had been completed, revenues had grown by a whopping $1.34 trillion more than the congressional budget office had predicted. now, when you write your budget, it is clear that the congressional budget office is not going to be able to differentiate because it has never really been able to differentiate between policies that cause growth and policies that impede growth. and so if you adopt a major tax reform package, my guess is that the congressional budget office is not going to score it as
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generating much in the way of revenues. i believe that we have every right to assume that if we change policies, especially if we adopt policies that have worked in the past, that they're going to have an impact. if i were writing the budget and i were going to dramatically change policies with tax reform and with regulatory relief, i think you certainly have the right to assume that we're going to get halfway back to norm with this policy. i think that's the conservative estimate. now, what this will mean is when you write the tax reform bill, part of it will be permanent and part of it will go away in ten years if, in fact, we haven't
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achieved what we set out do, which was to write one that was self-financing. if it works, and if revenues grow, you've got to assume that public support would be sufficient to make it permanent. but i want to say something about permanence. if there's anything that you learn in being government is that nothing is permanent. the great 1986 tax act was changed twice in ten years. this idea that the economy will not respond to tax provisions that are going to potentially expire in ten years is invalid. there are very few business people that i've ever met anywhere that have confidence as to what government policy's going to be ten years from now because most of the people that had confidence have gone out of
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business long ago. finally to conclude and then throw it open, i want to mention two dangers, two things i worry about that i think we ought to be paying attention to as we're trying to get the economy going, as we're trying to get this liftoff, and they're sort of two problems that are out there that don't show up today. one of them is the debt servicing cost of the doubled federal debt that has occurred in the last eight years. 55% of that debt was bought directly and indirectly by the fed, and then the interest payments were rebated to the treasury, and we've had historically low interest rates. so actually in the last eight
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years we double borrowing and the cost of servicing the debt actually went down. but when we have a full-blown recovery, every recovery in the postwar period has been driven by exactly the same things and produced the same rultsesults. it's been driven by strong private investment and by home building. and in every recovery that has been a normal, robust recovery, interest rates have risen. if we get a full-blown recovery and trp ratinterest rates go up debt-servicing costs are going to explode. now, you've seen the numbers where in ten years debt-servicing costs alone will exceed medicare. but let me give you even more frightening number to me, and
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that is historically in a recovery government borrowing has grown at about 1.7% a year. in the recovery we hope to start, within five years with a full-blown recovery and interest rates returning to to their normal levels, debt-servicing costs will rise to 6.6% of gdp. historically, the federal reserve bank has offset some of this by expanding the money supply to meet the needs of trade, and they've created enough liquid ditty so that the net government borrowing has been 1.4%. but now they've quadrupled their balance sheet with all of the monetary easing programs, so when interest rates rise, banks
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are holding over $2,012 of reses over $1 they're required to hold. the fed is paying them interest so they've really turned these reserves into a treasury note, a treasury security. but if we get a full-blown recovery, interest rates start to rise, banks are going to start to lend. and when banks start to lend, the money supply's going to start to grow. and so despite all the fed's reassurances about all the things they can do, they can sell securities, they can pay higher interest on deposits, they can let the securities they hold mature on their balance sheets, they can borrow against the securities with reverse repos. all of those things have the same thing in common, and that is they're all competing with a private sector for available
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capital. when you look at where they are in their balance sheet, if you assume that in a five-year recovery that they sold off the balance sheet, which is what bernanke has now predicted, they would have to sell over $500 billion worth of securities a year and absorb 3% of gdp in competing directly against private investment for loanable funds. so what is the message here? one, we need a strong recovery. two, once a recovery is in place, interest rates, i believe, based on the debt problem and the federal reserve bank balance sheet problem, that interest rates are going to rise
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faster than they have in the average recovery and they're going to be higher as the recovery reechds recovery reaches maturity. this is going to force us to look at things like spending control and entitlement control quicker than the congress or the president want to do. it's very important that this be done. final point, mr. chairman, thank you for your patience. if we don't break out of this rut we're in, if we continue at a 1.9% growth rate, or if we break out and we can't do the things necessary to keep the recovery going, we could easily end up in a secular stagnation.
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and america can't be the america we know if it's not growing and prosperous. everything our country stands for, all of the opportunities that we believe should be there for every american depend on growth. and so i think we need to be bold in getting the economy growing and then we need to be vigilant about what we do to keep it growing. thank you, mr. chairman. >> thank you. i'm always fascinated to hear you. you put things very clearly. i'm going to defer to senator corker to ask the first questions, but before i do that i want to mention that once i had an opportunity to talk to all of the head accountants for the sec and when i was asking questions my people back in the office were noticing that the camera did a little wedge like
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that and everybody behind them was asleep. there aren't many people that can talk about numbers and keep people awake, so i was keeping track and everybody was awake. you do an outstanding job at presenting. >> thank you. >> senator corker. >> thank you mr. chairman. i'll be very brief i've got folks wauting on me. that was a very full some presentation and senator graham i'm somewhat like you and others here like to listen to. i'm just againly going to observe what i observe here right now, and that is a party-like atmosphere where nothing is going to be done to deal with spending, certainly when you have a president that's not willing to deal with 70% of our spending mandatory spending, we're not only that's where the spending is but that's where all the growth is taking place too, it's growing very rapidly, and then we have numbers of discussions about tax reform,
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tax cuts those are two different things, obviously. sometimes they can take place in a combined way, but just for what are it's worth, i think you've always been generally speaking, a fiscal hawk. i agree with you 100%, there's no way to deal with the issues that we have before us without growth rates substantially increasing. i do think that we will move ahead in a strong way on regulatory reform, think that's one thing the president is committed to, he can do a lot of that himself. we will pass substantial dodd frank reforms. i'm conis vinced under the leadership of senator kra poe. and so some of the things you alluded to are going to happen. what i fear most, just an observation, again, you've answered most questions by your presentation, is that i will say, let me just guy digress for a inspected under reagan, no doubt the '86 law one is we all look at and certainly admire the
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economy that took place under reagan. >> i will say the national debt doubled and we never got things under control. the national debt doubled and we became the mantor for republicans became, unfortunately, deficits don't matter anymore. and so somehow or another, with your leadership and coming into caucus meetings and all that we've got to figure out a way to not just do the sugar side of this but to do the spinach side and i'm going to tell you right now i see no evidence whatsoever, no evidence of us being willing to deal with the spinach side of the equation. so i think we're in a hell of a mess right now, hell of a mess, and i -- while i'm someone who happens to believe we ought to give some accountence to dynamic scoring, i think there's going to be a push to be carry that to levels that are beyond belief and beyond reality and i'd just love to have any comments and i'll stop.
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but i'm telling you we're in a hell of a mess right now from the standpoint of where the nation is and the lack of ability here to deal with the other side of the equation. >> well, let me say that if we -- we are getting along now because we don't have any recovery. we don't feel the fever of this big debt and we don't feel the impact of this massive buildup in the federal reserve bank's balance sheet because there's so little pulse. but when the economy starts to grow and interest rates start to rise, it's not me saying that servicing the debt we have right now is going to cost as much as
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we're spending on medicare annually, those numbers are numbers that are out there that are easy for anybody to calculate. >> no -- no debate. no debate. >> and if we can break out of this rut and get the economy going, it gives us a chance to gon ga gain control. i'm not trying to be an alarmist, but i don't think we'll be able to keep the recovery going if we don't begin to deal with spending. and i think at some point we'll be forced to do it and my guess is what will force us to do is it is rising interest rates. if you don't ever get the economy going, then this problem will get worse without warning signs. but if we ever get the economy going and rates go up, these bills come due.
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>> yeah. well, just as one senator and it's going to take -- this is going to take 50, it's going to take 50 of us, okay, as one senator i think we need to be really careful when we do this tax reform to not overproject revenues. >> i mean, the fact is you talked earlier about 4.6 trillion in additional revenues over the next ten years. some of the -- i don't know which particular plan you're looking at. >> well, no, that's if we could get back to the average growth we had over the previous 60 years. that's what the number would be. >> yeah. >> what i said was even if you could get back half that growth, so splitting the difference between the 1.9 that is projected now and the 3.4% we were able to get through
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recessions and expansions for 60 years, if we could get to that level, that would be 2.3 trillion over ten years, that, to me, would be a conservative number. but, look, i don't fear having to give part of the tax reform cut back if it doesn't work. in fact, it is somewhat of a disciplining agent that part of it would be temporary. and like i said earlier, this deal where people won't respond if it's not forever till jesus comes back, the 1986 tax bill was changed twice in ten years and it is still the gold standard for tax reform. >> i'm going press on. thank you, mr. chairman, for deferring and thank you so much for your continued contributions
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to all of us. thank you, sir. >> i can't possibly let him leave without asking this question. what overarching goals should congress focus on when debating tax reform for individuals, for corporations, internationally, how do we ensure that these marginal tax rates incentivize growth? >> well, the one thing i would emphasize, mr. chairman, is that everybody focuses on the '86 act and what it did to marginal rates. but that was only part of its productivity. it also eliminated all kinds of subsidies in the tax code where people were incentivized to do all kinds of things that made no sense economically. so the first thing i would do is get rid of every provision that you can possibly get adopted in the current tax code that pays
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people to do things. all of the -- and i know some of them reach almost religious fervor in terms of support some have for them, but to the extent that you could eliminate deductions and credits and subsidies, do it. and use the money to lower rates. that would be my first advice. i think we will have to assume that we're going to have some success. i don't think we can make this work assuming that after we -- we lift regulatory burden and after we reduce tax rates and reform the system that we're going to have the same economy we got now. if cbo is anything close, that's what they're going to assume. >> i don't think we can or
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should assume that. i think that will mean that part of the tax cut part of the reform will have to be for ten years, but like i said, the greatest tax reform in american hissly it was amended twice in ten years. and quite frankly, if it doesn't work, having it snap back may not turn out to be a bad idea. now, my belief is if we're conservative, if, for example, we assumed that by implementing all these reforms we could just get back to half of where we were for 60 years prior to january 20th of 2009, i think that is the conservative estimate. i believe that's doable. now, we need to be relentless and i just would throw in
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senator cork rubbermaid -- cork rubbermaid the point about regulatory burden. president reagan used to say to those of us that were involved in his program that we underestimated what they were doing in lifting regulatory burden. i didn't pay a lot of attention to it. but looking back he was right. regulatory burden today is at least as big a problem as the tax code, at least as big a problem. and the ash metrbitrariness of . the law is whatever the regulator says it is. and it's a terrible situation and it wilts confidence and it wilts investment.
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and if we change it, america will change. >> thank you. and the democrats have invoked a rule that means that this hearing has to end at 11:30 so in order of arrival i have senator gardner then senator grape poe then senator booz bullsman. >> i'm only going to use 14 of the 15 minutes left so i'll leave some time for everybody else if that's all right. i'll be quick. senator graham thank you for your sker vis and expertise before the committee. just one question and then i'll make sure everybody else has time as well. senator lee and i have been working on legislation zraegs the regulatory burden you talked about, also addressing the deficit situation, the debt situation this country facing dollars. by tying the issue of regulatory burdens on our businesses which slow the economy with the facting that we need a thriving economy in order to address our debt crisis. and so the idea that we've come up with is this. if we're face and we will be faced with increasing the -- increase the debt limit in this country again, then in order to
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increase that debt limit, shouldn't we then face -- shouldn't we put in place some kind of a mechanism to spur economic growth at the same time? because if you're just increasing death without economic growth it's it's a spiral that results in more broken credit. so the idea would be this, that you take -- say you increase the debt limit by a trillion dollars, then would you at the same time have a regulatory reduction, reduce the regulatory burdens on businesses by some percentage. so maybe have a 15% reduction in the -- in the cost of regulations for every "x" amount that you increase the debt. so what do you think about that kind of approach to find the regulatory cost, to limit that and use that? >> i think anything you can do to reduce regulatory burden could be good. i think your -- you might end up with some problems with senate rules in trying to do that. another idea that i have thought about is what about adopting a
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ten-year debt-limit increase where you set out in law the debt ceiling increase will be so large, there's no way you can go back and make changes in policy to deal with it. but here they would be much much
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smaller and you might actually be able to control them. you could also keep up with it and, basically, stop bill saying this is going to take us over. and if i were a member of congress and we did that policy, i'd just say, look, i would increase the debt ceiling for ten years, in ten equal amounts, i'm not going to do it again. so, the -- that, i think, would be a good approach to it. what happened on the debt ceiling, really quickly because i think it's important. in world war i, they changed the law because they had to adjust the debt ceiling to be able to pay for bills and it was real cumbersome. and so they let it be done over an extended period of time because it was spending so much money on the war effort.
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i wish we had gone back to the old system because what better way to stop spending than to make people vote to raise the debt ceiling to pay for it. you might go back, senator, and look at the preworld war i law and how it worked. another nice reform would be to raise the debt ceiling and change the law, so beyond that point any bill of any significance beyond what's in the budget, you would have to vote on a debt ceiling, and that would thin the ranks for spending. >> thanks, senator. >> thank you very much, mr. chairman. and i thank you for inviting senator graham to be with us. senator graham is welcomed to see you. we miss you here. i'm glad that we're getting some of your advice today because we still need your wisdom.
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i just want to go quickly into two things. i really want to get some numbers out. i apologize, i wasn't here at the beginning, you may have already said this. how many years has it been since we have not achieved greater than a 2% growth? i think it's approaching ten years. >> let me put it this way. there is no president in the last 135 years that has not achieved at least one year of 3% growth in their presidency. and i say 135 because annual data is not available before that, but i am convinced that if we actually had the annual data, that the obama presidency was the first presidency in american history that never had a 3%
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economic growth in any single year. well, i think you're headed -- we had not had growth rate for at least eight years. and you've indicated that the average for the last, i think, 60 years was 3.4%. >> that for the 60 years of 1948 through 2008, that's counting the recession. >> counting part of the recession, yeah. >> and i believe you've indicated that if there were -- if we were able to achieve just half of that difference, that it would be over -- >> $2.3 trillion of revenue. >> do you have the number of what it would be if we could get back to just the average. >> 4.6. >> if we were able to get back to just the average, we would have $4.6 trillion of additional revenue to the treasury.
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>> and the point i made in the testimony, mr. chairman, is that our policies in the last eight years had been so dramatically different from our policies in the previous 60 years, that you've got to believe if we change the policies that the problem is not america, the problem is the government. you're getting europe's results because our government looks more and more european. >> that leads to my next question my understanding is that some of the analysis shows that the yearly cost of regulatory compliance in the united states is approaching 2 trillion. it's 1.8 plus trillion dollars cost per year. that doesn't translate into its impact on the budget, on our congressional budget. but my question to you is -- if
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we were to address the excessive regulatory burden that we've put on our economy in an effective way right now. that would also add to -- with which we could deal with our national debt, correct. >> if you gave me a choice of eliminating the regulatory burden or adopting the trump tax reform, i would take eliminating the regulatory burden. >> the fact that people can't do business when they don't know what the rules are, that financial institutions are being shaken down in this country every day. on trumped up violations, you've
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got a government bureaucrat sitting in the board room of every major financial company in america, like the old from the soviet union was in the factory and on the submarine. >> that's right. >> i want to give back 20 seconds of my time we're running out for those who haven't had a chance yet. that's a critical additional issue. >> you do them both. we're going to get america back. >> that's right. >> and people can ask -- put questions in writing which i'm sure senator graham will be happy to answer and we have three minutes left. >> you mentioned historical averages and things. the historical average of serving the debt is 5, 6%. if we heat up the other things we'll have that to contend with.
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at what point do we have the balance of the debt. this is something that we actually can figure out pretty easily. where is the tipping point there? >> i don't know about a tipping point. but let me tell you, economy started to grow and interest rates rose as they have in every post, debt service cost are going to rise very rapidly. the federal reserve bank is going to have to stop stopping up liquidity by selling assets and interest rates are going to rise. just to give you a number, in the average recovery in post war america, government barred 1.7% a year in competing with the private sector. at normal interest rates would be barring 6.6% of gdp.
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so it's -- we don't feel the problem because we don't have any growth, but if we had real growth, you're going to get the fever fast and so what it's going to mean is, if we can get the economy going, we're going to have to deal with spending quicker than the political part of our country wants to deal with it. it can't -- we can't let it pass. >> thank you. no. no. no. i'll yield to mr. kennedy. >> i just got an interpretation of one of the attorneys that looking at the rules and our own statute, it appears that we can interpret ourselves as exempt from the two-hour rule. so if you have another question, go ahead. >> let me go ahead and take my time then. >> the other thing is, again, looking at the historical average of our labor force 1.4% historical average. we anticipate about 4.5%
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arkansas now has very low unemployment rates, how does that going to -- what do you do about that, how do you impact that with our ability to grow in the future. >> let me give you a number. when the regular gan program was adopted, the disability rose and the social security plummeted. >> i use -- i'll say mr. president, people got up out of wheelchairs today and went to work. that's not that farfetched. our labor force participation in very low. it can go up and will go up if they're really good jobs out there and if we quit paying people not to work.
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president obama waived the work requirements in every state of the union. we need to put those requirements back, so i'm not worried about americans being willing to work if we're willing to provide the incentive for them to go to work. >> i appreciate you mentioning the regulatory burden, what it's doing to our community banks and the fact that we are moving into this european style of doing things where you're really trying to take the risk out of capitalism with our community banks and the regulatory burden that they're facing that is simply making it so difficult for small business, people with good ideas to be able to get out and actually make those come to fruition and create the jobs that we need, so thank you very much for being here. >> when you take the risk out of
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capitalism, you take the life out of the problem. >> that's exactly right. >> yeah. >> senator kennedy. >> we're creating some jobs but we're still about $6 million short of where we ought to be in recovering from a normal recession. >> i grew with you the part of that smothering of that is our business by regulation and rules. we're growing at less than 2%. pre2008 for 30 years we averaged about 3.1% growth.
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. the other problem it seems to me is productivity, we're rocking along about 1% productivity every year. it ought to be at least 2%. i noticed that a lot of our businesses are making record profits. but they're not reinvesting. they're -- they're doing stock buy backs. they're paying dividends and at least part of the problem, according to one economic theory is that the cap -- our capitol is not being re -- capital is not being reinvested in plants, machinery, equipment and technology, which means we're not creating job jobs and we're not increasing productivity. we tried doing something about that on the monetary side. i think we've done just about all we can do and maybe even some harm. i don't see any choice than to
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address it on the physical side. >> let me address the productivity thing. i think just to bring together regulatory burden in the productivity, you've obviously seen the number that community banks have hired more compliance officers since the adoption and dodd frank than they've hired loan officers. my son head hedge fund. it had nothing to do with crisis. . we've imposed all of these costs that in many cases do no good and often do some harm. it has not been run out of ideas, what is happened is that we made it hard to do business,
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we've created tremendous uncertainties. we've had regulatory apparatus that is hostile to business. >> you can have a successful economy and do that. but you can't have a successful economy if you're trying to do harm. i think what has happened we now have an environment where regulators are hostile to the very people they regulate. >> they were doing their job. we were suppose to be doing our job. they wanted us to be successful.
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>> money, we have proven the limits of monetary policy, now we're going to prove the cost of it. >> regulation is the number one problem in this country. >> thank goodness it's the bills in the last eight years are are shel shells. >> what the stress test tests that can all be changed and we need to be relentless in changing it.
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tax rate in the world. when you brick in state rates. when you can operate for ireland for 13%. you're not serving your nst tors by doing business here. >> i've received more complaints from my business people, small and large in louisiana about regulation than i have about the tax code. now, that doesn't mean they're happy with the tax code. . i've introduced a bill and you have less than 10e billion dollars in assets, you no longer have to comply with dodd frank.
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. i said, explain to me what the community banks defined is less than $10 million in assets did wrong in 2008. and she said they did nothing to contribute to the melt down. now, i don't know if that bill will pass, but even former congressman frank has been quoted as saying, we went a little too far on the small institutions. i'm not saying all what is well with the larger banks, but i'm saying it's been my experience these community bankers are relationship bankers, they don't do derivatives. they don't do mortgage backed securities. they loaned to small business people and they're able to monitor their credit worthiness. and the average small bank is less than 100 employees. we've lost 1,700 of them. and the reason is that they're having to sell or merge because
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of regulatory cost, which ironically, is creating institutions that had more assets, which dodd frank was suppose to help with. >> well, the big banks have gotten bigger. >> yeah. >> and the small banks have gotten fewer, that's true. look, if anything we can do to reduce this burden will have a big impact. and today you can't make a character look. today it's all formula driven and if your loan violates that formula, you're going to get called in one of the four of five audits you do a year. imagine, you run in a little bank and you get audited four different times so you've got to prepare for the audit for a week or two and then you audit it for
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a week and then for a week or two, you've got to respond to things they found that you've got to correct. when you multiply that times four, you know, you're not knowing your customers very well. you know your regulator real well. >> i mean -- >> yeah, so how did we get into this mess and how do we get out of it. well, we got into it because there was an agenda that was waiting to happen. >> yeah. >> dodd frank had nothing to do with the financial crisis. it was an agenda to have the government dominate the banking system. it's been an agenda of -- to progressives for 100 years and they had the opportunity and they got it. now, we're paying for it in lower glo
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lower growth. now, they had the authority and they did it and people voted for it. so did people vote to do this, i guess you can say they did. but they didn't know what it was going to cost. that is the point i would argue. and i think, again, on this regulatory thing, we need to be absolutely relentless. and i just can't state it too strongly. it's more important than anything else. now, these other things are important. >> so, we've got to break out of this cycle. >> thank you, mr. chairman. >> senator johnson has joined us. he's the other accountant and he's the chairman of the
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homeland security and government accountability committee and they had a hearing, but theirs had to end because they didn't have the same statutory capability that we do. senator johnson. >> we have rules. >> i think i know what it takes to grow a company. you can take that example to macro example, as well. from my standpoint you need security, you need the rule of law. you need to make sure that your physical location is safe and secure, it can't be vandleized, you need labor, you need people to work. then you need capital. let's say, you know, of course i just came from a hearing on cyber security, from a national
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level, you need a safe and secure, you know, national security and homeland security. let's concentrate on labor and on the capital. i come from the viewpoint and come from wisconsin in the last six years i have not visited one manufacturing plant in wisconsin that can hire enough people. not one. we had a real problem in terms of not having enough people to milk the cows and they really rely on immigrants to do that. can you just kind of address that situation, demographically, what your thoughts are in terms of our labor pool? why do you have such a low participation rate? wh with a tight labor market, we're not seeing wage growth, not for years. i will throw a little editorial opinion in there, we have this burden that translates out to about 14,000, per year per
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household, it might be a drag on wages, let's talk about the situation in america. >> well, first of all, the work requirement has been waived in virtually every welfare program and every state in the union. my guess, it's been waived in your state. we need to reinstitute those work requirements. the eligibility standards on food stamps have been reduced dramatically and the eligibility for disability under social security have been reduced dramatically. you've got some unions, which 75% of their members get disability designation when they retire. this program is clearly abused. -- so we need to require people to go to school and we can do
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all of this stuff by computer. the labor force participation rate is down. i said it earlier, you weren't here, that back during when the reagan program first took hold, one of the most astonishing numbers was the number of people on social security disability -- people are getting up out of wheelchairs and going to work. i think that's part of the problem. i think another part of the problem is we're wasting huge amounts of labor. there are high schools in my state when more people go to prison than go to college. if we reformed our education system, gave people a choice as to where they spent public money in educating their children, we
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could revolutionize the labor force in america. i wonder how many people in these schools, these failing schools have got real ability. my guess is a lot of them and that's something we can fix. these all require changes in policy. >> we also tell our kids that ewe have to get a four year degree that implies, there's something with that. so we need to stop denigrating the trades. >> the fertility rates and what do you think we need in terms of
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immigration and, you know, powell see -- policies that promote people coming into the country that take advantage of the opportunity that are coming into the country to work and provide that labor we're going to need. >> there are a lot of things we can do to get americans to work longer. i don't understand that. it doesn't effect me one way or another, but why should we make somebody over 70 pay social security and medicare if they're still working. why wouldn't want them to keep working and get the benefit they've qualified for. there are a lot of ways that we can get people to work longer by making it easier.
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. america can't be america without immigrants. this is an issue i'm hard over. . i don't think people ought to come here illegally. illegal immigration is a big problem. it's illegal. and i think we ought to gain control of our border, i'm willing to build a wall. i've got fences around my ranch. so -- but we've got -- we need people to come to america and i think we ought to let people come that can bring things that help us -- people that can bring the education they have, that can bring the skills they have. can bring the capital they have. . i want a vigorous legal immigration program and i don't mind, i'm sorry, i just don't
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buy it. that some brilliant engineer coming here from wherever is taking a job away from somebody. >> we need the best and brightest and introduce that makes that legal immigration system governed by the states. i think the states will be better judge of, you know, what sectors they want them working in, what wage rates to make sure we don't depress american labor, i'm on the same page with that. >> thank you, senator graham. >> thank you. >> thank you for coming and thank you for all of the complimentary things that get done in your committee for what we're trying to do here and we'll have to work together on more of those. i can't thank you enough for being here today for your. incidentally anybody on the committee that wants to submit
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committees -- questions can until the close of business today and we hope that would answer those for us, too. some of them would be more specific, i have some that will deal with a lot more numbers that i would appreciate someone putting together for them because it would be a help, but i love the ability you have to phrase things, you make it simple, you make it understandable. you even make the numbers seem exciting. -- i appreciate you making the case of doing something and doing a lot of things that would keep this country from implo imploding. >> mr. chairman, i appreciate it coming today. i'm sorry that we've got this dispute going on and we don't have our democratic colleagues here. let me just say in conclusion, that anybody that's writing off
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america's is making a big mistake. anybody that doesn't believe that policy matters, all they've got to do is look at the history of our country. we took the masses yearning to breathe free that and produced more evidence of what you can do with a good system that any nation in history has ever done. so i don't understand how people can look you in the face and say, well, our poor economy has nothing to do with the policies we followed for the last eight
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yea years. i guess the soviet union didn't collapse because of bad policies, well what did they collapse from we have grown faster for europe than our whole history, is that just an accident, i don't think so. i think these are the points we need to get back to and you've been very flattering to me because we are old friends and i appreciate it. thank you very much. >> thank you. >> thank you. >> thank you very much. the hearing is adjourned.
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